A Conversation with University of Tennessee Law Professor Glenn Harlan Reynolds (Part 1 of 2)

The Instapundit founder and Substack writer talks to Michael E. Hartmann about the tax incentivizations given to the nonprofit sector and whether they’re really effecting their original policy purpose, and what to consider doing about it.

As the Beauchamp Brogan Distinguished Professor of Law at the University of Tennessee College of Law, Glenn Harlan Reynolds has studied and taught about law and technology and constitutional law, among other subjects. He has long prolifically contributed to the wider public discourse, as well, including through the popular Instapundit blog that he founded in 2001 as part of a class on Internet law and his Substack writing.

His knowledge and wisdom are wide-ranging; his answers to questions refreshingly direct. He does not evade.

Here’s a brief, late-January Instapundit post by Reynolds that we noted with particular interest, for example: “TAX THE RICH, FEED THE POOR, TILL THERE AIN’T NO RICH NO MORE: GOP lawmakers try to tax ‘woke private universities’ massive endowments. If it were up to me, I’d limit nonprofit tax exemptions to organizations that actually provide services to the needy.”

And in a Substack piece last year, “Thoughts on our ruling-class monoculture,” Reynolds writes, “While elections change out elected officials sometimes, the rest of our society—the bureaucracy, academia, media, corporate leadership, what is generally known as the ‘gentry’ or ‘ruling class’—remains the same.

“And our ruling class today is very much a monoculture.”

That got our attention, too, perhaps especially given a previous accordant piece or two published here.

Reynolds was kind enough to join me for a conversation last week to talk about these and related issues. The just more than 12-minute video below is the first part of our discussion; the second is here. In the first part, we discuss the tax incentivizations given to the nonprofit sector and whether they’re really effecting their original policy purpose, and what to consider doing about it.

There is “a pretty compelling case that” the nonprofit sector is “just an unregulated area with a lot of money sloshing around in a very tax-favored” environment—“and actually not just in terms of the federal income-tax deduction, but also to other state deductions and other benefits that nonprofits get—to no particular public purpose, and I think that’s probably right,” Reynolds tells me.

“I think probably until after World War II,” nonprofits are almost exclusively aimed at “serving the needy or as churches and things like that—which have a not necessarily compelling, but widely accepted argument that they should be tax-exempt for First Amendment reasons,” he continues. “But it’s like a huge explosion in the post-war era, and especially over the last two or three decades, of nonprofit entities that are fundamentally political in nature, really.”

“It’s kind of problematic to have” the Internal Revenue Service “start really scrutinizing these things that closely,” according to Reynolds. “First, the job’s too big … and they can’t be trusted. So a simpler way of doing it would be to simply say” that those nonprofit organizations that are not

in the business of operating hospitals and orphanages and things like that can continue to operate, but no longer under special, advantaged nonprofit status. If you think it’s worth donating money to them, then you have to pay tax on that money before you donate it to them—just like you’d have to pay tax of the money before you gave it to me. By the way, anybody … who wants to give money to me is encouraged to do so. I’m not against donations, but I will say that there’s no particular reason why somebody donating money to me should be able to deduct [it from their taxes]. I think for most nonprofits, it’s kind of the same thing.

He later adds what he calls a “a class angle to” to the issue. In many ways, “nonprofits give rich people a way to affect the society with tax advantages that people who aren’t rich can’t really do now. If you said, for example, that somebody who’s” a billionaire “could get an extra vote, people would be outraged. But in essence, when you tell them that you can take money that is 50% increased by tax deductions, that’s somehow different,” he says. “Much of what nonprofits do is basically political, or at least social meddling in ways that are of dubious social benefit, and also it’s a way to launder money. If you want to give money, you can launder it through these” donor-advised funds.

In the conversation’s second part, Reynolds discusses the folly of tax-incentivized support of America’s ruling-class elites, including its philanthropic ones, and what to consider doing about it.

This article first appeared in the Giving Review on February 19, 2024.

Michael E. Hartmann

Michael E. Hartmann is CRC’s senior fellow and director of the Center for Strategic Giving, providing analysis of and commentary about philanthropy and giving. He…
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